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European Union Looks to Tighten Banking Supervision

European Union regulators may get the power to overrule national banking authorities under plans to tighten banking supervision that are aimed at avoiding a repeat of mistakes that led to the credit crisis.

The proposals, scheduled to be published by the European Commission on Wednesday, call for new European supervisors to have the right to step in and settle disputes if national regulators cannot agree on the oversight of multinational financial institutions, whose businesses cross borders.

That idea is likely to provoke opposition from Britain, which has argued that, since national governments have to finance their bailouts, their own regulators should have the final say.

A representative said the British government would “consider the commission’s proposals when they are formally published,” adding that they would “be a starting point for discussion.”

His study rejected the idea of a single European “super-regulator,” opting for a more incremental approach — one more likely to win support in European capitals.

The commission’s plans foresee the creation of a European Systemic Risk Council to assess information about financial stability and keep an eye on broader economic risks.

Its members would be drawn from national central banks and led by the European Central Bank’s president. The vice chairman would be selected from one of the 11 European Union countries that do not use the euro, a group that includes Britain.

This body would “not have any legally binding powers,” according to a draft of the document seen by The International Herald Tribune. But it would issue risk warnings and monitor the follow-up, forcing those responsible authorities to “act or explain” and making its recommendations public if it chooses.

More likely to provoke opposition are the proposed powers of the European System of Financial Supervisors, which would also be drawn from regulators in the 27 member states. They would oversee and coordinate the work of the national regulators, who supervise banking, insurance and pensions, and securities.

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This body would create a single set of rules to operate across the European Union, developing “binding technical standards in specific areas” and drawing up “interpretative guidelines which the component national authorities would apply.”

The draft document says that, if the national authorities disagree over an institution, the European bodies should try to help broker agreement. If, after a phase of conciliation, there is no agreement, the European System of Financial Supervisors “should, through a decision, settle the matter.”

If they detect a flagrant breach of European law, the proposal would also give the European Union power to force countries to come into line by adopting decisions “directly applicable” to the institutions.

Barbara Ridpath, chief executive of the International Center for Financial Regulation, a research institute in London part-financed by the banking industry, said that any proposal that could lead to Britain’s regulator, the Financial Services Authority, being overruled would probably run into opposition.

“There is a strong upsurge of national preference,” she said, “for national decisions in the sense that it is the national tax-payer that foots the bill if things go wrong.”

However, Patrik Karlsson of the British Bankers’ Association said a possible compromise could involve the principle of binding mediation in all but the most serious issues. In the most serious cases, however, national regulators could not be overruled, he suggested.

By contrast, some critics in Brussels accuse the European Commission of being too timid.

“They are not going far enough in the powers that these authorities will have over national regulators,” said Karel Lannoo, chief executive officer of the Center for European Policy Studies in Brussels.

“As long as they don’t have clear powers you can forget the idea that the system is going to change,” he added. “We already have colleges of supervisors and they have not worked. With Fortis or Royal Bank of Scotland there was no real exchange of information, no real oversight.

“What the commission is doing is trying to accommodate the interests of different member states without proposing something that is good from the European perspective.”

A version of this article appears in print on , on Page B2 of the New York edition with the headline: European Union Proposes Tighter Banking Supervision. Order Reprints|Today's Paper|Subscribe